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Economists say Canada’s annual rate of inflation likely fell in December for the fourth time in five months, pushed by lower gasoline prices.
But a survey released Monday by the Bank of Canada found consumers are still keeping a wary eye on their spending because they expect inflation to keep soaring.
“The fear factor definitely plays a big role,” said Pedro Antunes, chief economist at the Conference Board of Canada. “People see the headlines about a recession and inflation, and they get scared.”
Those fears could become a self-fulfilling prophecy, warned Antunes. If enough consumers cut back their spending because they’re afraid of a recession, it risks making any recession deeper than it would otherwise be, he said.
“There has been a real impact on spending,” said Antunes, who added the economic news isn’t all doom and gloom. He pointed to the most recent Labour Force Survey, which found that the Canadian economy added 104,000 jobs in December, the vast majority of them full-time. That brought the unemployment rate down to five per cent.
“That was a really strong number,” said Antunes.
The Bank of Canada survey found that a majority of Canadians are expecting a “mild to moderate” recession over the next 12 months.
The survey found that Canadians have reduced their spending on a wide variety of goods and services in response to interest rate hikes and inflation, and a growing share expect to keep cutting back.
The first to go? Perhaps not surprisingly, spending on restaurant dining, travel, hotels and recreation was hit hardest, with almost 90 per cent of consumers cutting back.
But even categories traditionally seen by economists as having “inelastic” demand — because people still need them even if they’re struggling — saw Canadians cutting back. Almost 60 per cent (58.33 per cent) of Canadians said they’d pared their spending on groceries, while just under 50 per cent said they’d cut back on transportation costs such as gasoline.
In November, the annual rate of food inflation rose to 11.4 per cent, while the broader “headline” rate of inflation fell slightly to 6.8 per cent.
On Tuesday, Statistics Canada is expected to release its inflation numbers for December. A consensus of economists surveyed by Bloomberg predict the Consumer Price Index was 6.3 per cent higher in December than it was a year earlier. That’s a drop from 6.8 per cent in November.
A report from National Bank Economics says inflation likely dropped to 6.2 per cent in December.
“Plunging gasoline prices, combined with expected weakness in the goods sector, should have weighed on the headline figure, offsetting sustained price pressure in the services segment,” the report said.
Still, not everyone’s convinced the December number will drop.
Arlene Kish, chief Canadian economist for S&P Global Market Intelligence, predicts the headline number will stay put at 6.8 per cent, even though gasoline prices dropped again last month.
“There are other items within the consumer price basket that will take its place. Notably, food price inflation is not expected to soften to any significant degree,” Kish wrote in a report.
Food inflation has been outpacing the main “headline” CPI number for 12 straight months due to a variety of factors, including supply chain woes caused by COVID, increased prices for grains since Russia’s invasion of Ukraine, and a sagging Canadian dollar.
In November, some food items rose even higher than the overall increase in grocery prices. Eggs rose 16.7 per cent from a year earlier, bread rose 15.5 per cent and fresh fruit rose 11 per cent.
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